Tech sector ETFs might be a safer bet to play a comeback in Apple stock and the tech sector than buying company shares. But not all ETFs are worth investing in just yet — even as the market shows signs of a comeback.
John Kosar, president and chief market strategist at Asbury Research, tells Investor's Business Daily's "Investing with IBD" podcast that his preferred market indicators, the Asbury Six, are signaling a stronger market. But while investors can afford to be risk-on in some securities like the Technology Select Sector SPDR Fund, other ETFs might need to be waited out.
All About The Asbury Six
The Asbury Six puts ETF indicators including market breadth, volume, relative performance, asset flows, volatility and the price rate of change into either a positive or negative rating, and aggregates them to create a score that indicates market health.
The indicators are updated every day to capture incremental changes in the market, says Kosar. "When you go in for your annual doctor's checkup, your hair's done, you have nice clothes," said Kosar. But the doctor instead is "checking your heart, lungs and reflexes and your pulse.
"I want to see the health of the market," he said. "How you look on the inside may be different than how you look on the outside."
Audio Version Of Podcast Episode
Kosar says he saw the market bottom out around Oct. 27. "A day or two after we bottomed, the next two days I started to see the individual [indicators] in the Asbury Six start to turn green one by one until finally the indicator itself turned," said Kosar. The slow shift in the Asbury Six indicators meant that under the hood, the ETF market was processing the uncertainty and figuring out if it was a breakdown, a change in trend, and/or a buying opportunity.
But once the indicators began to fall into place, Kosar says he made sure there was money on the sidelines ready to move into securities like ETFs. "[The indicators] gave me the confidence to be able to put on our research that now is the time to put that money back to work."
Better Than Apple Stock, But Not All ETFs Are Investable
However, even an uptrend notice doesn't mean an all-in frenzy for Kosar. There's a difference between seeing the bottom and rushing back in.
The trick instead is to pick sectors that are outperforming and dodge the underperformers. That's where ETFs like the XLK become valuable.
Such ETFs give investors exposure to tech names like Apple stock. The iPhone maker currently has a whopping 23.16% weight in the XLK ETF fund, according to State Street. Alongside Microsoft, XLK tends to move together with uptrends in the tech industry.
Kosar says he uses his SEAF model to determine where to invest. SEAF stands for Sector ETF Asset Flows, which Kosar says identifies ETF opportunities by tracking where money is flowing. "First the money moves, and then whatever you're looking at on the chart starts to move," Kosar said.
Models like the SEAF and the Asbury Six let Kosar get ahead of the chart and see buy signals faster. "I was looking for a way to participate in these trends quicker," said Kosar. "Following the money allowed me to do that."
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